Formula to Calculate Labor Force Participation Rate
Labor Force Participation Formula refers to the formula that is used in order to calculate the active workforce of the economy with respect to its total population and as per the formula, the Labor Force Participation rate is calculated by dividing the total number of persons available for work by the total population.
Below given is the formula used to calculate labor force participation rate:
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For eg:
Source: Labor Force Participation Rate Formula (wallstreetmojo.com)
Where,
- The labor force is the sum of workers that are employed as well as unemployed.
Calculation of Labor Force Participation Rate (Step by Step)
The formula for Labor Force Participation Rate can be divided into the following steps:
- First, we need to identify the labor force which is the summation of workers that are currently employed whether on salaried or self-basis.
- Most of the definitions defined employed persons who are above the age of 16 years and generally excludes those who are working in homemaking or self-service and volunteers.
- Unemployed people shall also exclude those who are unemployed and are less than 16 years of age, people who did not look for a job in the last 4 weeks.
- Whereas the working-age population shall include everyone except for minor persons that are below the age of 16, people in elderly care centers, and in some cases military personnel.
- When you sum up the employed and unemployed person that shall form the labor force and divide that result by working-age participation, the result will be the labor force participation rate.
Examples
Example #1
Based on records, the working-age population of country XYZ was 233,450 thousand and the workers that were employed were 144,090 thousand, and workers that were unemployed were 11,766 thousand. You are required to do the Labor Force Participation Rate calculation of country XYZ.
Solution
Use the below-given data for calculation of labor force participation rate
- Workers that are employed: 144090.00
- Unemployed Workers: 11766.00
- Working Age Population: 233450.00
Calculation of Labor Force
- = 144,090 + 11,766
- = 155,856
Therefore, calculation of labor force participation rate is as follows,
- = 155,856 / 233,450
Labor Force Participation Rate will be –
- = 66.76%
Example #2
Country PQR an emerging nation and is a small country. To calculate its labor force participation rate, it has recently adopted the US Bureau of Labor Statistics framework. The following details have been derived from a public domain maintained by the ministry of labor of the country.
- Total Population of a Country: 25344177.00
- People below minority age (16 yrs): 412766.00
- People in elderly care centers: 1323789.00
- Housewives solely home looking activities: 7433901.00
- Self-employed people: 5333881.00
- Volunteers: 412766.00
As per the criteria, the working-age population shall exclude those who cannot be employed at all like People below 16 years of age, Elders, and Military citizens. The further Labor force will avoid those who cannot be employed at all.
Based on the above information you are required to calculate the labour participation rate.
Solution
In this example, we are not given directly the labor workforce and neither working population.
Hence, we shall calculate the working-age population first by excluding minority age people, militants, and elderly care centers.
Calculation of Working Age Population
- =25344177.00 – 412766.00 – 1323789.0
- =23607622.00
Now, we shall calculate the Labor force where we need to avoid Housewives and volunteers who cannot be employed at all.
Calculation of Labor Force
- =23607622-7433901-5333881-412766
- =10427074
Therefore, calculation of labor force participation rate is as follows,
= 10,427,074/ 23,607,622
Labor Force Participation Rate will be –
- = 44.17%
As per the definition in the example, the labor participation rate is 44.17%.
Example #3
McDonald’s wants to open a new franchise either in-country V or in country Z. The deciding criteria for it are to invest in a country wherein there is youth population since it will prefer to employ them and further for their business youth is preferred.
Below are the details for the two countries:
| Particulars | Country V | Country Z |
|---|---|---|
| Workers that are employed | 227044.00 | 216135.00 |
| Unemployed Workers | 17649.00 | 17649.00 |
| Working-age population | 1089115.00 | 1199705.00 |
| Labor Force | 244693.00 | 233784.00 |
The Criteria is to select the country with a higher labor participation rate.
Solution
Country V
Therefore, calculation of labor force participation rate is as follows,
- = 2,44,693.00 /10,89,115.00
Labor Force Participation Rate will be –
= 22.47%
Country Z
Therefore, calculation of labor force participation rate is as follows,
- = 2,33,784.00 /11,99,705.00
Labor Force Participation Rate will be –
- = 19.49%
Labor Force Participation Rate Calculator
You can use these labor force participation rate calculator
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Relevance and Uses
The labour force participation rate formula as stated earlier can be defined as the % of the working-age population which is the share of the labor force. This is a measurement as to in what ratio and proportion of a population of the nation are either actively looking for employment or employed. The Higher this labor force participation rate ratio, which can be understood as the higher the population of the nation is keen or interested in working.
This ratio should be analyzed along with unemployment data in order to better understand the overall employment status. There could be situations wherein recession and the economy is really bad, there may be discouragement in labors to work which could mislead the results.
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